How are New Age Fintech Solutions Addressing Financing Gaps for SME Sector?
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It’s no secret that India is witnessing a new era of budding entrepreneurship and startup culture. With new businesses being founded every day, the need for funding is at an all-time high. That’s why they are going straight to FinTechs.
What is a FinTech Company?
They are financial technology companies that are disrupting the lending industry by working digitally. Long gone are the days of standing on line at your local financial institution or talking to government agencies. Now all you have to do is submit your information, financial statements, and bank history via the web and hopefully walk away with a loan.
FinTechs are taking the world by storm. KPMG India and NASSCOM are expecting the industry to cross the $2.4 billion mark by 2020.
The National Manufacturing Policy of the Government in India wants to strengthen the contribution of SMEs to Indian GDP by 25% by 2020. There’s one roadblock: the lack of available SME loans.
Banks and other traditional non-banking financial companies are weakened with non-performing assets and do not like to extend short-term financing to businesses that deem risky. To mask the risk, they accept collateral. Since most SMEs do not have collateral to give, they lose out on the short-term financing offer.
To avoid short-term financing from banks, most SMEs turn to money market lenders for their financing needs. These lenders charge interest rates of 2-3% per month and do not offer flexibility in repayment conditions.
FinTech companies have made the accessibility of funds easier than ever before and are successfully filling the financial gaps faced by SMEs. How?
Strengthening Business Finances: A new opportunity could knock on your door at any time and as a smart entrepreneur, you need to be prepared for anything. If your cash flow situation is not stable or you need working capital to meet business expenses, it helps to take out an unsecured loan for a short period of time until the situation improves. For FinTechs, such loans do not come with any major repayment penalty and can last from a few months to years.
Flexible and Convenient Applications: FinTechs tend to work on a Monday through Friday schedule where banks in India do not work on certain days of the week and/or month. This poses an issue when you need to visit a bank branch in person while applying for business financing and implies that there will be days where your request will not be processed.
Quicker Loan Processing: Through bank loans, it can take weeks before the money is transferred into your account. If you have an urgent need for money and cannot afford to wait, a loan from a FinTech company is your better option.
No Collateral Required: Traditionally banks ask for collateral for a sense of security and can come in the form of residential or commercial property, gold holdings or any other asset that can be liquidated. FinTechs do not ask for collateral and offer their loans based on evaluating the business.
The underlying objective for FinTech companies is to support promising entrepreneurs in getting quick funds to jumpstart their business ideas. SMEs can grow if they consistently have access to a quick way to secure funds.
As the government continues to promote digital transactions through e-wallets, the mobile-drive point of sale and internet banking, the financial structure must be modernised to continue to grow with the new “Made in India” vision.